Europe 2023 recycling volume framework talks delayed by uncertainty

Mark Victory


LONDON (ICIS)–The start of 2023 volume framework contract discussions in multiple European recycled polymer markets have been delayed amid lingering uncertainty over the evolution of market given current energy costs and weak demand, weighted against growing pressure to reach sustainability targets.

At the same time, on 22 September,  industry association Packaging Recyclers Europe (PRE) issued a statement warning that current energy costs could lead to bankruptcies across the recycling industry unless action is taken by the European Commission.

September would traditionally see the start of negotiations for 2023 volume framework contracts, and would typically see players begin to forward plan demand expectations for the new year.

Nevertheless, the current underlying volatility in the market has delayed the opening of discussions. Players are uncertain how looming recessionary pressures and electricity costs will balance against rising pressure on sustainability.

The past few years have seen recycled material increasingly decouple from virgin price movements and macroeconomic conditions, amid structural shortages. This has increased players’ difficulty in forecasting supply and demand in the mid-term.

According to a PRE survey referred to in the statement, average energy costs for recyclers have increased from a typical level of around 15-20% of production costs – minus labour and maintenance – to a current average level of 70%

Unlike the petrochemical sector, the recycling industry typically operates on narrow margins and on smaller cash reserves, placing them at greater risk of bankruptcy in any sustained downturn. Currently the market is faced with the spector of rising costs and falling demand.

The most energy intensive part of the recycling chain is typically the conversion from bales to flakes and pellets. Nevertheless, waste managers and sorters have also seen rising costs due to escalating electricity prices.

Waste managers face the additional challenge that the longer waste bales are stored, the more they degrade and so at some point they will need to destock regardless of cost to avoid spoilage.

Unlike with bales, it is possible to store flakes for an extended period provided sufficient storage capacity is available.

Many downstream players in multiple countries – but in particular Germany and Italy – have switched to short-time working, with some turning of plants altogether, amid high energy costs, competition from virgin and mounting macroeconomic weakness.

The electricity cost burden varies from country to country, and player to player, depending on contract position, but is impacting across the continent.

There is currently a wait-and-see attitude across the markets in anticipation of various government announcements on how they intend to tackle the energy cost crisis. Nevertheless, different governments taking differing actions risks intensifying disparity between market players’ commercial positions based on geography.

Nevertheless, demand from the packaging sector remains robust – particularly from large brands in the recycled polyolefins markets – on the back of ambitious sustainability targets which go beyond what the market is currently being able to deliver.

As a result, players in this sector are nervous that if they step out of the market now, they may not be able to step back in, in the future.

The PRE statement also highlighted the risk to future investment of high costs. This echoes concerns expressed by market players in recent weeks. Concern is particularly intense in the flexibles sector – which typically has a higher energy intensity than rigid recycling.

Flexibles recycling remains a largely nascent market, although it has been growing quickly, and any reduction in investment now could exacerbate structural shortages in the mid-term.


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